Thankless strata home GST status change

Thankless strata home GST status change

Published on: Monday, January 26, 2015

Kota Kinabalu: When the Goods and Services Tax's (GST) six per cent regime was first announced in 2013 that it will be implemented from April 1, there was no firm knowledge as to whether the management or maintenance service charges payable for strata home or residential property are subjected to GST payment or not.
Even the booklet meant for consumer understanding and reference would only be released later this month.
A lot of smart alecks were already increasing the management fees while arguing on both sides of the amateurish approach to the implementation of the GST regime when even a lot of Customs officers were clueless waiting for directives whether oral or in writing.
In the beginning, they were only professional in given general, hazy, evasive, stonewalling answers. Even industries from the A-Z like travel, hotel to the insurance sectors resigned to their cluelessness and double-speak when asking for specific and authoritative answers.
Last year, some residential management committees registered for GST to be on the safe side of the law before the deadline on the understanding that all joint management boards and management committees of residential strata properties were placed under the standard rated supply list if their annual billing of maintenance and sinking funds exceeded RM500,000.
Being on the standard rated supply list means they are supposed to register as GST-paying entities if conditions are met.
Now, belatedly, the Finance Ministry has notified that all categories of residential strata property will be placed under the exempt supply list of the goods and services tax (GST).
This means their joint management boards (JMBs) and management committees (MCs) need not register as GST-paying entities, even if their collections exceed RM500,000.
The reply from the ministry was revealed only after petitions for zero rated status were sent to Prime Minister Datuk Seri Najib Razak, who is also the Finance Minister.
The ministry replied that it could not consider the appeal to be categorised as zero rated because JMBs and MCs of residential strata properties were regarded as entities engaged in conducting a form of business under the GST Act.
This means the appeal to classify maintenance fees and sinking funds paid by low- and medium-cost apartment residents as zero rated was rejected by the cash-strapped government.
The ministry stated that all categories of residential strata property would be placed under the exempt supply list from the low-cost to the super expensive penthouses of condominiums.
Previously, only low and medium-cost apartments were placed under the exempt supply list.
Being on the exempt supply list means that while JMBs and MCs did not have to register as GST-paying entities, residents cannot claim back the six per cent they pay as GST for the services of their contractors, technicians and repairmen for the upkeep of their flats.
For the government, there was actually no difference between the GST-exempt supply and GST standard-rated supply because in the end, the government would still get to collect the 6 per cent GST.
The only difference was whether this was though output tax or input tax.
There are still a lot of smart alecks looking forward to meet with the ministry for a mind change before April 1 for all strata units – whether residential or commercial – to be classified under the zero-rated supply list including the plight of the low- and medium-cost strata unit dwellers who largely comprise of the working and lower-income class already struggling with the rising cost of living.
Under the exempt supply list, although they do not have to register as a GST-paying entity, residents would not get a refund for the 6 per cent input tax they would have to pay their contractors, technicians and repairmen for the upkeep of their projects.This in effect, would mean that JMBs and MCs would have to increase maintenance charges in these developments by 6 per cent in order to pay suppliers in the form of input tax.
Only goods under the zero-rated supply list can claim from the Customs Department the GST incurred through payments to service providers.
Rising cost of living is already putting pressure on low- and medium-income families, and for them, there is no betterment in terms of what the government has offered, except getting the BR1M payment.
Residents of low- and medium-cost apartments formed the bulk of those living in the 25,000 stratified housing estates in Malaysia as they could not afford to stay in landed homes like some hawkers are going to increase their prices even if some politicians call for price drop because of the decrease in fuel prices.
Meanwhile, the Federation of Sabah Industries (FSI) calls for a deferment in the hike in water as well as electricity tariffs in view of what was described as going to be a bad year.